While the other posts have some insight into some potential problems, I'll add my most recent out-of-memory error solutions:

• ulimit - make sure your memory settings are set as high as you need. If you have a box unto yourself, the ulimit could be set to unlimited - if it is already set there, then this isn't your problem.
• Perl version. You don't specify what perl version you're using, but we had to undergo an emergency upgrade from 5.8.6 to 5.8.7 which solved some of our out-of-memory conditions. Also, when I first started using XML, we were using 5.6.0 even though 5.8.0 was out. Under 5.6, we got constant memory problems, while 5.8.1 (which we eventually moved to for that prototype) had none, with no other changes to the code.

Even if these don't help you in this situation, others may find your question via Super Search, and I just want these suggestions kept here beside the other good suggestions. ;-)